Q&A: How the health law penalty takes its bite

Originally published March 27, 2014 at 12:22 am

Updated March 27, 2014 at 2:31 am

The new health care law helps some people, hurts others and confuses almost everyone. Hoping to simplify things a bit, The Associated Press asked its Twitter, Facebook and Google Plus followers for their real-life questions about the program and the problems they're running into as the March 31 deadline approaches to sign up for coverage...

The new health care law helps some people, hurts others and confuses almost everyone. Hoping to simplify things a bit, The Associated Press asked its Twitter, Facebook and Google Plus followers for their real-life questions about the program and the problems they’re running into as the March 31 deadline approaches to sign up for coverage in new insurance markets.

Two of their questions and AP’s answers:

WHEN YOU LOSE YOUR PLAN

Q: “My premium AND my deductible are doubling … in order to comply with Obamacare — I liked my coverage before, and I was promised repeatedly I could keep it. My husband is self-employed so we don’t get the breaks big corporations do. My question is how are self-employed people supposed to afford insurance under the ‘Affordable Healthcare Act’?” — Amber Wiser Thompson, St. Clairsville, Ohio.

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Her story: When she posed the question, she and her self-employed husband were facing soaring costs for a new health plan starting this month. Their insurer was discontinuing their old plan because it didn’t meet standards of the Affordable Care Act. The insurer’s replacement plan cost $1,100 a month with a $5,000 deductible — in both respects, twice what they’ve been paying. More than 4 million Americans similarly found themselves scrambling for new private coverage when their old plans were pulled from the market because they didn’t comply with the nation’s health care program.

A: Instead of accepting a new and more expensive replacement plan from an insurance company that discontinues your policy, shop for coverage on the HealthCare.gov exchange, see if terms are better than you have now — and check whether you qualify for a subsidy.

What happened: The Thompsons did just that and found a policy on the Ohio exchange that headed off the big cost increase. It’s also from the same insurer. “I have an almost identical policy with the same premium and deductible that I did before,” Amber Wiser Thompson said.

There’s a catch though. Their costs stayed about the same only because they qualified for a tax credit on the exchange. Because her husband has gone into his own business, the family’s income this year is highly unpredictable. If her husband makes too much money, the couple will lose their subsidy and see their costs jump after all. In that case, they may have to pay back thousands of dollars.

“It seemed to be something I just couldn’t get around,” Thompson said. “I researched and filled out applications and was on the phone for about three days to get to this point.”

Once she found the new policy, she learned that she and her husband might have been able to keep the old policy after all because it apparently was being extended at the last minute. But she decided to go with the new coverage, she said, describing her situation in a phone interview and emails. “There was no way I was going through that again so I left well enough alone.”

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WHEN THE PENALTY HITS

Q: “If I don’t sign up, when does the penalty start to affect my wallet? How much is the penalty? How is the penalty collected?” — Shanna Derringer, Manning, S.C.

A: You’re likely to feel the penalty in early 2015, when you file your taxes for this year. That’s when you’re supposed to verify to the IRS that you’ve got coverage. (If you don’t make enough money to have to file a federal tax form, you don’t need to buy coverage under the law.)

The penalty for this year is $95 for an individual or 1 percent of income over $10,000, whichever is greater. So someone who makes $30,000 in 2014, let’s say, could be charged $200.

The penalty jumps after that. In 2015, it’ll be $325 for an individual or 2 percent of income, whichever is more. In 2016, $695 or 2.5 percent.

There are caps involved, and different numbers for families, making the math even trickier. But why do math when the Tax Policy Center will do it for you? Plug in your income and dependents here and see: http://goo.gl/A4MKxh

As for how it’s collected, if you are due a tax refund, the IRS can deduct the penalty from what it gives back to you. Otherwise, the IRS will tell you what you owe. One more thing: The government considers how many months during the year you’ve been without insurance. So if you lacked coverage for half the year, you could be subject to half the penalty.

More detail on who needs insurance and how the penalty works: http://goo.gl/Rw469s